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JPMorgan Chase slashes dividend

February 24, 2009|Tom Petruno

Wall Street has shown strong faith that JPMorgan Chase & Co. will survive this deep recession, but the bank Monday still opted to play it safer -- by hacking its dividend payment to shareholders.

At the same time, the company said it has been "solidly profitable" this quarter, offering a ray of hope amid the latest stock market meltdown.

JPMorgan said it would slash the quarterly cash dividend on common stock to 5 cents a share from 38 cents. The bank said the move would allow it to hold on to $5 billion a year in cash to bolster its equity.

"While we recognize our tremendous obligation to shareholders to maintain dividend levels, we also understand that extraordinary times require extraordinary measures," Jamie Dimon, JPMorgan's chief executive, said Monday.

"Our action today is being done as a strong precautionary measure to help ensure that our fortress balance sheet remains intact -- even if conditions worsen significantly," he said.

"As always, our highest obligation during an economic crisis is to keep our company and franchise healthy, vibrant and strong for the future."

The company said that its first-quarter financial performance so far was "solidly profitable even after significant additions to [loan-loss] reserves, and the outlook for the quarter is roughly in line with analyst expectations."

The market reacted positively to the news overall: JPMorgan's shares, which fell 39 cents to $19.51 in regular trading, rose to $20.65 in after-hours activity.

The move comes ahead of the government's plans to put the biggest U.S. banks through a "stress test" to determine whether they have enough capital to survive rising loan losses. Those that fail the test will be compelled either to raise private capital or to take more government money, which could dilute current shareholders' stakes.

Dimon said the dividend cut was "not directly related" to the government's Troubled Asset Relief Program, or TARP. The bank received $25 billion in Treasury capital late last year under TARP.

"Our reason for accepting TARP capital still holds -- namely to help stabilize the banking system and economy," Dimon said.

"The decision to retain additional common equity does, however, help position our company to repay TARP as soon as is prudent -- and still maintain a strong capital position."

Unlike shares of rivals Citigroup Inc. and Bank of America Corp., JPMorgan's stock hasn't descended to levels that would suggest investors believe that nationalization is imminent.

JPMorgan's dividend cut could make it easier for Wells Fargo & Co. to cut as well. Wells' shares have been hammered for the last two weeks, although they edged up 12 cents to $11.03 on Monday.

Wells has insisted it would maintain its dividend. But the annualized dividend yield on the stock is 12.3% based on the current payout -- a sign the market doesn't believe the dividend rate will be sustained.


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